How is the Startup Narrative in the Silicon Valley Changing?
The new narrative in the Silicon Valley is taking the focus of startups from fast growth to steady profitability.
FREMONT, CA: For decades, startups have inclined toward spending millions of dollars to achieve quick growth in the marketplace. However, the new narrative in Silicon Valley favors a steady profit generation over growth. As venture capitalists become more fiscally responsible, the entrepreneurs are exercising more caution into their investments.
The change in attitude among the startups has brought more discipline into the landscape. For many years, the excessive funding by venture capitals funded the growth of nascent tech companies. The plummeting stocks of Silicon Valley unicorn startups have spurred the change in the attitude of ventures and entrepreneurs.
The last few years have witnessed enormous investments by native and foreign investors in unicorn startups. Despite the warnings, the vast funding was invested in the growth of the companies. It allowed entrepreneurs to delay taking their companies public. By the end of 2018, startups in the United States had raised an investment of $131 billion through venture firms.
Recently, the disappointing performances of many of the promising startups have raised doubts regarding the startup recipe, which advocated fast growth at the expense of profit. The companies now realize the importance of profitability in maintaining stability. The uneasiness surrounding the new narrative is urging venture firms to evaluate the gross margins of their companies and measure their profitability.
Several venture capitalists are trying to revolutionize their financial models and urging startups to rein in their investments. Many experts argue that startups focused on traditional sectors such as real estate, transportation, and so on are not supposed to have high valuations, which, unlike software enterprises, often have high overheads.
The weakening performances of high valued startups are forcing venture capital firms to take caution. As a result, the startup funding is taking place at lower valuations and with stricter terms. The rise in regulatory and compliance pushback is forcing companies to shore up their losses and focus on maintaining profitability.
The shift from growth to profitability can be challenging for many startups. However, it is a necessary step in maintaining stability in the market. The attitude of spending fast to achieve quick growth is no longer feasible in the current landscape. It is time startups took a step back and evaluated their financial models.
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